• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Accessibility Statement

Follow Us on FacebookFollow Us on TwitterFollow Us on InstagramFollow Us on YouTubeRSS Feed

Kimberly Howell Properties

San Antonio Real Estate

office@kimberlyhowell.com
(210) 493-6888
  • Blog
  • About Us
  • Agents
  • Buyers
    • Neighborhoods
    • Relocation Information
  • Sellers
  • Listings
    • Available Rentals
    • Homes for Sale
    • McNair Custom Homes
    • Open Houses
  • Contact
  • Rental SearchHomes for Rent
  • REALTORS®Find an Agent
  • McNair Custom HomesNew Construction
  • Property SearchHomes for Sale
You are here: Home / Archives for Mortgages and Financing

Mortgages and Financing

Lease Purchase Pitfalls

October 24, 2011 by khproperties 1 Comment

Pitfall Streeet

Lease Purchase aka Rent-To-Own

With overwhelming changes to the real estate and lending industries over the past few years, traditional means of home financing have been moved out of reach of many willing buyers. Buyers have begun to seek out creative means of financing, while sellers have looked for ways to make their home stand out, or to get it off the market. One such method that brings the two sides together is the lease purchase.

A lease purchase is a legal, binding contract between buyer and seller which establishes terms of a lease, and subsequent purchase of a particular property. All of the terms of both parts, lease and purchase, are binding. Essentially a buyer rents a property from the seller for a specific period of time and pays rent to the seller/landlord. At the beginning of the lease, both parties establish a sales price for the property, and at the end of the lease, the buyer/tenant is obligated to purchase the property by all of the terms outlined in the purchase contract.

While this scenario can be beneficial for both parties (a buyer may have time to correct credit issues or save up additional money for a larger downpayment; and a seller may take the property off the market in a saturated market while still collecting income), there are definitely many factors which could complicate the deal, much more than a traditional real estate purchase. Below are some of the stickiest areas. Knowing about them and negotiating a highly specific agreement to address these issues can help alleviate a lot of frustration, hassle, and stress in these types of contracts.

Lease Purchase Tips

Inspections/Repairs – In a standard real estate contract, inspections are generally conducted within the first few days after a contract is executed. Repairs are negotiated and the seller has until closing to correct specific deficiencies. Since the time between contract and closing is much longer in a lease purchase, this leaves a lot of time for things to break. Buyers should have inspections conducted in a lease purchase initially, and outline specific repairs for a seller based on the condition of the property at the time of contract. Once those repairs are agreed to, future repairs should be addressed. If the AC system breaks after 6 months, who should pay? Parties should evaluate the Texas Property Code for a more specific outline of landlord and tenant repair obligations. Other options would be for a specific criteria regarding repairs (example: any repair costing over $500 to be split evenly by buyer and seller, all else is tenant liability). Also address who chooses repair companies.

Foreclosure – If a seller has an existing mortgage at the time of the contract, the buyer may want to make arrangements to verify that the money he or she is paying each month in rent is actually going towards this existing mortgage. If the seller fails to make timely payments to their mortgage company, that lender does have the right to foreclose on the property, leaving the buyer high and dry.

Taxes – Whether or not a seller has property taxes escrowed through an existing mortgage, a buyer may ask for verification that these payments are being made. Again, this would help as evidence that no foreclosure or insurmountable liens filed on the property could delay or prevent closing.

Insurance – Sellers should maintain property insurance on a home throughout the term of the contract. They should consult with their insurance agent about specific coverage needed once the property becomes a rental. In addition to requesting evidence of the existence of this insurance, buyers may also want to secure their own renter’s insurance during the term of the lease.

Appraisal – In a lease purchase, a price is determined for the purchase months or years in advance. As we have seen, many circumstances, beyond the control of either party, can drastically impact the value of a property. Establishing a price at the get-go is essentially making a prediction of value far off in time. An influx of foreclosures could drive the property value down substantially and cause the buyer to be in a position of having promised to overpay. Or incoming businesses could actually increase the property’s value more than expected and the seller would be obligated to sell the house at much less than it is worth. Both parties run a risk by setting the price so early on. An appraisal will likely be done within 60 days of the actual date of sale. Parties should prepare to address a low (or high) appraisal value as the sale date approaches, or make accommodations in preparation of this from the start.

Financing – Just as it is hard to predict the real estate market over an extended period of time, it is also difficult to predict life and finances. What happens if a buyer loses his or her job midway through the lease? Or gets transferred? Or isn’t able to improve the credit scores enough to qualify for the financing as they originally intended? What recourse would the seller have?

Default – As these are all serious issues, the lease-purchase agreement should outline what means of recourse a buyer or seller would have, should the other party default on their obligations. If a buyer pays late on the rent, is there a financial penalty, or would the seller instantly need to go through an eviction process to reclaim the house? If the seller refuses to make necessary repairs, is the buyer still obligated to buy the property?

It’s the what-if’s and the multitude of obligations involved in this type of transaction that makes it so complex. While these transactions can be beneficial to both parties, they should not be entered into lightly. In fact, real estate agents are not even allowed to conduct these type of transactions without the involvement of a real estate attorney.

Readers are encouraged to consult with an attorney before entering into any real estate contract, particularly one involving a lease purchase. This article is designed to address only a few of the many complex issues  or points of contention that may arise from this type of real estate transaction. Suggestions made are not intended as legal advice.

image courtesy of Tim Green aka atoach

Filed Under: Mortgages and Financing Tagged With: seller financing, lease purchase, rent to own

FHA Loan Limits Drop

October 1, 2011 by khproperties Leave a Comment

HUD Building

Effective October 1, 2011, the loan limit on a FHA (government backed) mortgage on a single family home in Bexar County dropped from $332,500 to $287,500. The numbers, released by HUD and the FHFA have the potential to substantially affect the availability and affordability of mortgage credit.

FHA loans have been one of the most popular loan types in recent years, particularly for first time home buyers, due to their low downpayment requirement (currently 3.5%). The new, lower limit means that buyers will either have to come up with substantially more cash as a downpayment,or that many homes may suddenly be out of reach to many home buyers.

FHA loans have typically required a minimum of 3.5% investment by the buyer (downpayment). This means that anyone seeking to purchase a home with an FHA mortgage in Bexar County can no longer spend more than $297,927.47 on their home purchase with the minimum downpayment. ($10,427.47 downpayment and a loan of $287,500). Previously these same buyers could possibly have financed a loan on a property up to $344,559. That’s over $46,000 difference in home buying power for these types of buyers.

Alternative loan programs (non-conforming or “conventional”) require as much as 5% down before potential buyers could be eligible.

Forty two states contain counties that have been negatively impacted by these limit adjustments. San Antonio is not alone in feeling the pinch from the latest round of lending crackdowns.

What this means to you:

Buying a home: If you were considering an FHA backed mortgage, consult with your lending professional to see how these recent changes impact your specific loan situation. Adjust your home search criteria if necessary to take these new limits into consideration. Look for additional funds for downpayment that may open new finance options to you.

Selling a home: Homes priced in the $300,000-350,000 price range are most substantially affected, as the pool of financing options for potential buyers has been severely limited. Consider your price points and potential buyers. If these limits do make a difference, consider altering some of your marketing strategies to better target your new buyer pool. Be prepared for even strong buyers to struggle with some of the new regulations on the mortgage industry.

image courtesy of matturick

Filed Under: Mortgages and Financing Tagged With: fha loan limits, fha loans, fha, fhfa, hud, loans, mortgages, down payment

  • « Go to Previous Page
  • Go to page 1
  • Go to page 2
  • Go to page 3

Primary Sidebar

Open Floorplan

Is An Open Floorplan The Right Style For You?

Open floorplan living is often billed as the perfect floor plan, bringing family together in a single room where cooking, conversation and the screen share the same space. It has been a popular feature of a … [Read More...] about Is An Open Floorplan The Right Style For You?

New Kitchen

Nine Mistakes To Avoid With A New Kitchen

No room carries more influence with a buyer than the kitchen because it’s where the everyone gathers and many memories are made. The kitchen can represent up to 20% of the entire value of a property, so it’s … [Read More...] about Nine Mistakes To Avoid With A New Kitchen

House Fire Safety

9 Ways To Avoid Housefires

A fire in your home can happen at any time of the year, but with colder months upon us it’s easy to see how the danger increases with the setting of wood-burning heaters and the use of candles to create a cozy … [Read More...] about 9 Ways To Avoid Housefires

Call A Plumber

Is It Time To Call A Plumber?

As a homeowner, you’ll inevitably have to call in a Sydney plumber to deal with plumbing problems at some stage. It’s one of the ‘pleasures’ of owning property! Choosing the right contractor can feel a little … [Read More...] about Is It Time To Call A Plumber?

First Time Homebuyer

8 Tips For First Time Homebuyers

Being a first time homebuyer can feel quite intimidating – you’ve got to deal with agents, sellers, rival buyers, banks, and title companies. And it’s not always clear what role each of them plays in the … [Read More...] about 8 Tips For First Time Homebuyers

Search Our Site

Real Estate Topics

  • Buying a Home
  • Homeowner Tips
  • KHP News
  • Local Events
  • Local Laws
  • Miscellaneous
  • Mortgages and Financing
  • Open Houses
  • Real Estate
  • Real Estate Market
  • Renters and Landlords
  • San Antonio Places
  • Sell Your Home
  • Technology
Our real estate agents can help you with properties anywhere in Texas. If you need assistance finding agents in other parts of the country, please contact us.

Search Homes

Explore Cities

  • Alamo Heights 28 Listings
  • Bandera 385 Listings
  • Blanco 155 Listings
  • Boerne 614 Listings
  • Bulverde 284 Listings
  • Canyon Lake 370 Listings
  • Castle Hills 21 Listings
  • Castroville 77 Listings
  • Cibolo 349 Listings
  • Comfort 57 Listings
  • Converse 555 Listings
  • Fair Oaks Ranch 68 Listings
  • Floresville 265 Listings
  • Garden Ridge 25 Listings
  • Helotes 201 Listings
  • Hill Country Village 3 Listings
  • La Vernia 183 Listings
  • Lakehills 119 Listings
  • Leon Valley 24 Listings
  • Live Oak 57 Listings
  • Mico 118 Listings
  • New Braunfels 1298 Listings
  • Olmos Park 6 Listings
  • San Antonio 9543 Listings
  • Schertz 272 Listings
  • Seguin 607 Listings
  • Selma 59 Listings
  • Shavano Park 14 Listings
  • Spring Branch 363 Listings
  • Terrell Hills 26 Listings
  • Universal City 72 Listings
  • Windcrest 29 Listings
  • Hollywood Pk 5 Listings

Stay up to date with the latest from Kimberly Howell Properties.

San Antonio real estate and property information provided by Kimberly Howell Properties. Kimberly Howell Properties does not assume any liability or responsibility for the operation or content of any of the linked resources, nor for any of the interpretations, comments, graphics, or opinions contained therein. All information deemed reliable, but not guaranteed.

KJH Properties, Inc. is a licensed real estate brokerage in the State of Texas, Equal Opportunity Employer, and supporter of the Fair Housing Act.

TREC Information About Brokerage Services | TREC Consumer Protection Notice | Privacy Policy

All content © 2009-2020 Kimberly Howell Properties, unless otherwise noted.